Top reasons businesses suffer digital failure – and how to avoid them

In today's environment, a company's digital strategy needs to be at the heart of its overall corporate strategy.

Companies need to spend time promoting digital literacy across the entire enterprise.Handout

Digital transformation is a top priority in industries around the world. And no wonder: successful digital transformation enables companies to understand the context of specific customer interactions and equips them with the power to redefine their market, re-engage customers, reconfigure their cost base, and reimagine business models. However, simply undergoing a technology transformation does not guarantee the desired outcomes. In order to survive and future-proof their business, companies must get digital 'right'.

A recent survey found that only 8 percent of global enterprises consider themselves digitally transformed, with 23 percent still in the early stages of digital transformation. Businesses that successfully transform are in the top quartile of their industries, but those that do not risk the threat of disruption.

To better understand the gap between expectations and outcomes when companies undergo digital change, EXL Service partnered with Harvard Business Review (HBR) to survey more than 800 global executives across multiple industries.

Remarkably, the top three reasons why companies' digital transformation initiatives fail have nothing to do with technology itself, but centre instead on people issues. These include siloed organisational structures, an unwillingness to commit necessary resources, and an ill-equipped workforce who are unable to leverage advanced technologies. The study concluded that digital transformation involves looking beyond the hype that surrounds individual technology tools and is centred on finding the solution to individual company challenges.

Successful transformation requires digital intelligence—the all-important combination of data, talent and technology – to create a context for successful customer engagements. Digital intelligence enables companies to find opportunities to improve customer experience, execute more intelligently, and grow profitably. Put most simply, digital intelligence is the ability to combine human talent and complex, interdependent technologies to deliver tailored, breakthrough results.
Drawing on my experience of working with companies aiming to achieve digital intelligence, I identified certain factors companies need to consider when driving digital transformation initiatives. Although technology plays a critical role in enabling change, it does not guarantee transformation on its own. There are many other factors that influence outcomes, including:

Company culture

While the specific technologies used to drive digital innovation are important, other factors, such as a company's culture and the degree to which digital capabilities and thinking are embedded in its DNA, can play an even bigger role. The most common roadblock is a disconnect between management and the workforce, as confirmed by 53 percent of all the survey respondents to our report with HBR.

Unless expectations for the digital change strategy are shared and endorsed across the management ranks, it may not succeed. Digital transformation efforts fail when there is a significant gap between the executive level and middle management in terms of what the vision is and what needs to be implemented to realise it. Where an initiative is seen as purely IT-led or purely marketing-led, the other senior stakeholders don't feel they have skin in the game.

Companies also need to spend time promoting digital literacy across the entire enterprise – people should not be expected to adopt new technologies without proper training. This becomes all the more important when companies understand that digital technologies aren't going to replace their workers, but instead will supplement skills so they can work more efficiently and effectively - man and machine together. The high-tech industry, which enjoys some of the best results from digital transformation initiatives, is particularly focused on retraining its workforce. In our survey, we found 62 per cent of high-tech companies retrain their workforce for digital change versus 55 per cent of all other companies.

Customer centricity

82 per cent of financial services firms, including banks and insurers, told us that their desire to communicate with customers across preferred channels encourages them to embrace digital transformation. Today, companies are using structured and unstructured data from their own operations, social media, the internet, and third-party data firms to better understand their customers collectively and individually. If analysed properly, this will allow them to tailor products and services to unique customer needs, and to deliver products and services wherever and whenever the customer wants.

To further cement customer relationships, companies should use technology to facilitate omni-channel communications with their customers, via online channels and mobile devices. 69 per cent of survey respondents say their companies have already implemented mobile applications, more than for any other single technology. When we asked where their companies will be focusing digital initiatives this year, the results showed that companies are largely focusing on the same areas they targeted last year. 78 per cent of survey respondents say they'll be looking to improve efficiency, and 75 per cent say they'll also be trying to enhance customer value.

Define outcomes

Companies that invest in new technologies without a detailed strategy that identifies the challenges and desired outcomes can expect to fail in their efforts. Companies achieving the highest levels of digital transformation success are nearly three times more likely to have a formal strategy in place than those that are not seeing success.

To affect real transformation, executive leaders need to change their "mental models"— mind sets developed over time based on what has and hasn't worked in the past. This is a critical first step, but not an easy one – especially at older companies whose formative years predate the digital revolution.

In the past, digital transformation has primarily been driven by the creation of digital channels and the implementation of technology. In today's environment, a company's digital strategy needs to be at the heart of its overall corporate strategy. A forward-looking angle is imperative, but sometimes companies are not be able to have a birds-eye perspective on their operations and need a third party perspective to ensure tangible business outcomes are delivered.

Once the desired outcomes have been decided, it is imperative to put the right measurement metrics in place. Too often, companies focus on the wrong metrics: how much time employees or consultants are spending on a project, or what percentage of physical records have been digitised. The primary focus should be on outcomes in critical areas such as productivity, revenue growth, profitability, and customer satisfaction.

The companies that succeed at digital transformation are those that develop a digital strategy and ensure support for that strategy across their executive and management ranks. They also ensure outcomes are defined and measured and work hard to build up their internal skill sets by training existing employees and hiring where needed. More often than not, this requires the on boarding of experts to provide tailored roadmaps for companies on their path to digital success.

Positive outcomes from the use of digital technologies correlate with business success. However other factors such as skill sets and culture are every bit as important as technology— if not more so—in order to achieve successful digital transformation.

Mohit Manchanda, Head of Consulting and F&A Practice for UK and Europe at EXL Service, explores how companies approach digital change and what they can do to get things 'right'